Art museums find going free comes with a cost

When The Broad contemporary art museum opens its doors this fall in Los Angeles, it will join the ranks of America’s big free museums, reviving a frequent refrain: Why aren’t they all free?

In the case of The Broad, it’s almost entirely philanthropy supporting the bottom line.

It’s a “gift to the people of Los Angeles,” said Eli Broad, who along with his wife, Edythe, provided more than $200 million for the museum. “They felt strongly that free admission was the best way to make great works of contemporary art accessible to all,” said a spokesman for the couple, who own works by Roy Lichtenstein, Andy Warhol, Jean-Michel Basquiat and Cindy Sherman.

The Broads are also longtime supporters of the Los Angeles County Museum of Art, which is one of three museums that received a $450,000 federal grant to explore a new business model that has already allowed the Dallas Museum of Art to go mostly free.

It’s one way museums are adapting to the popular perception that art should be free, despite the fact that public financing has been declining while museum attendance is climbing.

With the help of its own multi-year grant, the Dallas Museum of Art eliminated its $10 general admission — while still charging for special exhibitions — and saw annual attendance jump to 668,000 from 498,000. It also offered free memberships, now up to 100,000, and emphasizes audience engagement. “Now we know who they are. That data is worth a lot more,” Maxwell Anderson, director of the Dallas Museum of Art, told Fortune.

The museum has seen a 29% increase in minorities visitors. Latinos alone now account for 26% of the museum’s audience. The new members’ favorite work of art is John Hernandez’s 1992 “HI-C Avenger” and the most popular badge is “ringleader,” awarded when a DMA Friend brings three people to the museum.

Nationally, a typical museum gets only 4% of its earned revenue from admissions, Anderson said. Only the outliers, such as the Metropolitan Museum of Art in New York, get more than 10% of their earned revenue from admissions, he said.

Once a museum goes free, it’s hard to go back. That’s the case at the Bronx Museum of the Arts in New York City, which is nearing the end of a three-year grant that allowed it to drop its $5 admission and see its attendance rise to 80,000 from 30,000. When the grant expires, there will be a $250,000 hole in the budget unless they find another donor, said Jose Ortiz, the Bronx Museum’s deputy director.

Not all museums can find a way to survive as free, said John Robinette, senior vice president of economics at AECOM, a global infrastructure company that also works with museums. One example often held up as a model of free are national museums in the United Kingdom, but as Robinette pointed out, the government ordered them to go free in 2001, but financially “they didn’t get what they needed” to make up the difference. Alistair Brown, the policy officer for the Museums Association in London, said the switch to free admission saw attendance rise 150 percent but many lost up to 40 percent of their government funding. Some were then criticized for accepting sponsorships from oil companies. Regional museums have been harder pressed and about 40 have closed in the past 5 years, he said.

Back in the United States, only a few have re-instituted admission fees. In 2006, the Art Institute of Chicago faced public criticism when it changed its suggested $12 adult admission to mandatory. (It’s now $23, or $33 with a fast-pass to skip the lines.)

The most recent to change in course was the Indianapolis Museum of Art, which on April 7 added an $18 general admission and aims to increase revenue by 17 percent this year, Matthew Gutwein, the museum board’s vice chair said last week. But the new policy comes with its own costs, including community resistance. “I just feel like this is putting a barrier between the common man and the art museum,” Nancy Stone said at an Indianapolis town hall, as reported by WTTV. “I don’t want it to be a fortress. I want it to be accessible to everyone.”

Four Reasons for a Business Model

During my TechStars office hours sessions last week, several teams asked me questions that led to the same place: Please draw a business model diagram. Everyone could, or said they could, but in each case it was clearly not a practiced exercise. A business model is not a business plan, although the two are often confused. How can you tell the difference? A business model fits on one piece of paper (or one flip chart page or one white board), is referred to regularly and has all sorts of uses. A business plan is a big pile of paper that even the author doesn’t read all the way through, and certainly no-one else does. Here are my four reasons to have a one-page business model picture

Completeness: You can make sure you have addressed all aspects of the business model. This is not exhaustive completeness – it should be quite high level and avoid getting into the weeds – but you get to see if you have any glaring holes.

Consistency: You can see whether all aspects of the business model are consistent with each other. For example, does the assumption about partners line up with the assumption about channels?

Clarity: You can see whether (and ensure that) all of your colleagues are clear about what you are doing and why .If asked to draw the model independently, would they draw the same thing? The model becomes a concrete focus for discussion about how it all fits together and brings out any misunderstandings or disagreements about what you are doing.

Communication: You can draw and redraw the model as you tell the story of your business to mentors, advisers, potential recruits, and potential investors. It can focus a staff meeting, board discussion or investor presentation. You can much more easily remember a diagram (and recreate it from first principles) than you can remember a page of text.

If you have started to think about a business you have started to diagram things out. That’s where to start. Take an hour. Certainly stop after 90 minutes. Leave it on a white board. Share it with colleagues and advisors. Let them add post-it notes with questions. Go back to it with at least a couple of people around each time – let the brainstorming drive good thinking. Don’t sweat the small stuff – even on the nine-sections of the Business Model Canvas, you only need six or seven elements to get going. Every company has “sales and marketing” as a Key Activity, and every tech company has “develop the tech platform” as well (and then “tech platform” shows up on the Key Resources panel, too). Don’t worry about that kind of completeness. Do worry about a value proposition for each customer segment, differentiated key assets and key partners, and revenue and cost components that characterize the economic drivers of the business. Advanced uses of a business model diagram include layering on key assumptions, generating explicit hypotheses, and building out tests of those assumptions. On a very related note, Steve Blank recently wrote a great post on misunderstanding a business model methodology (and how to fix it). Heidi Allstop of Spill shared this great resourcewith me for those interested in an online canvas tool.